Is the Ethereum merger a “Sell the News” event?

Buy the rumor. Sell ​​the news. It’s an axiom many investors have used over the years to time the market. Are traders now gearing up to “sell the news” when Ethereum merges in September?

When does an increase in interest in call options not bode well for future prices? Currently with Ether (ETH), according to Glassnode analysts in today’s “Week On Chain” newsletter.

Specifically, if the big proof-of-stake merger happens on time in September, ETH could be in for an important “sell the news” moment.

When Glassnode created this chart on Saturday, open interest (OI) in ETH options had reached $6.6 billion. This represents a return to 2021 levels, as well as a level close to the all-time high. Not to mention that OI is significantly higher than Bitcoin (BTC-USD) options (for the very first time)!

“If we look at the September contracts on Deribit, the directional bias of Ethereum traders is immediately clear,” the author states. “In terms of size, call options eclipse put options, with traders betting on ETH prices reaching $2.2k, with significant open interest reaching $5.0k,” Glassnode analysts write. .

“It bodes well for an exciting month ahead.” That’s an understatement, as it implies that traders expect ETH to rise 24% to 181% in September!

However, October does not look so promising. Glassnode plots the “implied volatility smile” for each monthly set of options contracts. This is where we can see if traders are betting aggressively for higher prices – or if they are playing it safe and betting prices closer to current levels.

In October, “we can see a dramatic decline on the right tail, with a relatively flat shape” for ETH options, according to Glassnode. Additionally, we see “significantly higher implied volatility on the left tail, indicating that traders are paying a premium for news put protection after the merger.”

This is what we see in the options market… What about Ethereum? After all, if people are flocking to crypto like they are for calls, it’s hard not to be optimistic! Glassnode is currently seeing “relatively light one-off demand” for ETH.

The chart below shows ETH trading activity since 2021. We can see the bigger picture this way:

The blue line represents ETH prices, which were up more than 500% before the “crypto winter” hit in November – much more than BTC prices (orange line). Since January 2021, we are at +144%.

The green and red bars at the bottom show that 500,000 ETH was traded frequently per day during the bull market of 2021 (or more). However, we have only seen this level of transaction volume twice in 2022:

On June 13, when Terra’s collapse brought down Celsius Network (CEL-USD), for example, 840,000 ETH was traded.

Fusion

The other time was June 15, when 564,000 ETH traded higher as the crash subsided. ETH prices then consolidated for a month before finally breaking out after July 14… When the developers set the September 19 target date for the merger.

Since then, ETH trading volumes have averaged around 150,000 per day. Wouldn’t you expect a lot more upside volume now if people were excited to buy/own ETH rather than just speculating on a single event?

Final Thoughts

It may take longer for investors to determine the significance of the merger after September. Just look back at Cardano’s (somewhat) meteoric rise to $3.10 on rumors of their smart contract release in September 2021. Shortly after Cardano released its highly anticipated smart contract capability, the Cardano’s ADA price dropped. It hasn’t exceeded 60 cents since then.